How to Start a Business Partnership in Indonesia

A business partnership agreement is a legal contract that specifies how a small for-profit business run by two or more persons would operate. The agreement specifies each partner’s obligations in the firm, how much ownership each partner has in the company, and how much profit and loss each partner is accountable for. It also provides regulations for how you’ll operate the firm and covers hypothetical scenarios that could affect it, such as a partner’s death or how a partner can leave the company. The goal of a partnership agreement is to put in writing answers to frequent business questions so that you and your partner(s) don’t end up at odds later on.

A partnership agreement exists in Indonesia, as well, to ensure that all stakeholders in this connection have clear communications and understanding. A contract is more than just a verbal agreement. It contains terms and conditions and must be in writing. In Indonesia, a legal partnership agreement is the best way to safeguard a firm and each party’s rights. You should always establish a partnership agreement when you begin a partnership with an individual or a firm. Using integrated software now makes saving and drafting partnership agreements easier. HashMicro ERP Software can help you create and archive important papers like partnership agreements. You can also view the pricing scheme calculations for the HashMicro ERP Software to facilitate your business.

Table of Contents

Why is a Partnership Agreement Important?

When it comes to collaboration, trust is crucial. However, no one can foretell what will happen in the future, particularly in business. As a result, practically every company in Indonesia requires a partnership agreement. Here are some of the reasons:

• To settle disagreements
• To resolve concerns with a conflict of interest
• To prevent tax problems
• Managing a partner’s life changes
• To define the duties and obligations of each partner
• To avoid legal problems and liability concerns

Also read: What is ERP and Why is It Important for Businesses?

Main Forms of Business Vehicles in Indonesia

Legal entities and commercial entities are the most common business vehicles in Indonesia. In a legal entity, the assets of the founder(s) are separate from those of the established entity, which is not the case in a business entity. Forming a legal entity necessitates the permission of many government agencies, but establishing a business entity necessitates simply registration with government agencies. Some examples of legal entities are Co-operatives, limited liability companies (Perseroan Terbatas (PTs)), and pension funds.

Options for Foreign Business Presence

For foreign business presence in Indonesia, there are two options:

• Setting up a new PT PMA

The most popular approach for an overseas corporation establishing a presence in Indonesia is to form a limited liability company with foreign ownership (PT PMA). The first step in creating a PT PMA is determining whether foreign shareholders can entirely or partially own the PT PMA. To establish a PT PMA, the founding shareholders must draft a deed of establishment comprising the PT PMA’s articles of association (AOA), which must be signed in front of a public notary and submitted to the Ministry of Law and Human Rights or MOLHR (Menkumham) for approval. After the MOLHR authorizes the AOA, the PT PMA must register with the Online Single Submission (OSS) system managed by the Capital Investment Coordinating Board (Badan Koordinasi Penanaman Modal) (BKPM). A business registration number (NIB) and a business license are issued via the OSS system. 

The commercial/operational license is only issued after a company has met or obtained all the standards, certificates, licenses, and registrations required for the product or service being sold. The benefits of establishing a new PT PMA include that foreign investors have immediate authority over the PT PMA once installed, and management can be customized to the investors’ requirements. Meanwhile, the disadvantages of establishing a new PT PMA include the need for permits, the establishment of a physical presence (office), and the hiring of employees, which takes time when compared to acquiring an existing PT PMA and going through an administrative process with government institutions and agencies.

• Purchasing an already-established PT PMA

An established PT PMA is another typical choice for an overseas corporation looking to establish a presence in Indonesia. This type of acquisition is subject to MOLHR approval and OSS registration. The benefits of purchasing an existing PT PMA include: pre-existing market brand awareness if the existing PT PMA is well-known and in good standing, the existing PT PMA has the necessary licenses/authorizations, an office, and workers.

The disadvantages of acquiring an existing PT PMA include the following: Before acquiring an existing PT PMA, an investor should conduct legal, due diligence on the PT PMA to determine the company’s soundness, particularly concerning outstanding taxes and financial obligations and whether the PT PMA is involved in any disputes with third parties.

Also read: 5 Ways to Expand Your Business to Indonesia

What to Know Before Entering a Partnership

Finding suitable business partners will increase profits, broaden the business network, and open the door to many new opportunities. However, not all business partnerships succeed. As a result, before you enter into a contract with a business partner, consider the following:

• Make sure you’re prepared to commit to long-term

For all business professionals, forming a business relationship is a long-term commitment. If this isn’t something you want to do in the long run, you may have to abandon the idea of forming a business partnership. This is because splitting up with a business partner in Indonesia is costly, especially when a contract is in place that makes all parties legally accountable. In Indonesia, dissolving a partnership takes significant money, time, and other resources. As a result, it is preferable to engage with long-term business partners in Indonesia.

• Plan ahead of time

Before starting a business with your partners, both parties should create a framework. This framework should include information on funding options, financial responsibilities, profit sharing, and other topics. Money is essential in this partnership, so you must be meticulous and upfront about financial issues. This can help to avoid the negative consequences of a business partnership.

• Keep the lines of communication open

Practical and straightforward communication is essential for you and your business partner to grow together. It may take work to get everyone on the same page. Good two-way communication, on the other hand, allows partners to grasp each other’s points of view. Mutual understanding enables both parties to achieve common commercial objectives.

• Implement your research

Many business owners in Indonesia need to realize how important it is to research their business partners. Due diligence is a thorough screening and investigation of the people or organizations you want to work with. Before signing a contract and forming a partnership, you must do your due diligence. This is because you want to find out how trustworthy the company or business partner in Indonesia is.

• Create a partnership contract

A partnership agreement is required for all partnerships in Indonesia. Working with a business partner in Indonesia without a partnership agreement is unlawful. Furthermore, a partnership agreement is one of the essential components in the success of the collaboration because it provides a guide for how the partnership runs. It specifies all terms, obligations, rights, restrictions, ownership percentage, capital contribution, profit proportion, and dispute procedures that benefit both parties and avoid future legal squabbles.

Also read: What You Need to Know About Indonesia Company Registry

How to Make a Partnership Agreement in Indonesia?

A partnership agreement is required for all partnerships conducted in Indonesia. This protects one partner from taking advantage of another, avoids legal issues, and resolves conflicts. As a result, a partnership agreement in Indonesia serves as the cornerstone for long-term and profitable cooperation. First and foremost, partners must draw out precise and detailed instructions and terms to be mentioned in the partnership agreement with the assistance of a professional. Then, in black and white, they should agree on the terms. Terms and guidelines shall include the following:

• The partnership’s name
• Names of the partnership’s partners
• Procedure for resolving conflicts
• Procedure for dissolving a partnership
• Partnership term and duration
• The specifics of the ownership transfer
• Ownership of stock
• Each partner’s duties and obligations
• Profit and loss distribution
• And additional critical information based on business procedures

How HashMicro Can Assist You in Making a Partnership Agreement

Seeking professional guidance is critical if one or more parties participating in the partnership agreement are still determining what a partnership shall encompass. In several industries in Indonesia, a coherent partnership agreement serves as the foundation of client and service provider interactions. A partnership agreement must include a thorough examination of the financial and legal terms of the partnership. An official partnership agreement in Indonesia can ensure that all parties have a fulfilling and effective collaboration. 

It also enables each party to understand their obligations and safeguard their rights when things do not go as planned. HashMicro has skilled legal specialists to advise you through the entire partnership formation process. All of your partnership agreement documents can be automatically connected with the help of HashMicro ERP, so you don’t have to hesitate to preserve numerous partnership agreements with various parties. With integrated ERP Software, HashMicro has assisted multiple companies in Indonesia in preparing various cooperation agreements.

Conclusion

A business partnership agreement is a legal contract that specifies how a small for-profit business run by two or more persons would operate. It also provides regulations for how you’ll operate the firm and covers hypothetical scenarios that could affect it. A partnership agreement exists in Indonesia to ensure that all stakeholders in this connection have clear communications and understanding. Before entering into a partnership, founding shareholders must draft a deed of establishment.

A partnership agreement specifies all terms, obligations, rights, restrictions, ownership percentage, profit proportion, and dispute procedures that benefit both parties and avoid future legal squabbles. An official partnership agreement in Indonesia can ensure that all parties have a fulfilling and effective collaboration. Using integrated software now makes saving and drafting partnership agreements easier. HashMicro ERP Software can help you create and archive important papers like partnership agreements. You can download the ERP Software pricing scheme to estimate the price. Also, you can try our free demo ERP software!